How to get out of project gone bad

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I am working on a web design and build. The client is to my mind highly demanding and although there is only about 5% of budget left, I am expecting that I will have to spend time worth around an extra 50% of the budget before they are happy to sign it all off.

I would rather cut my losses and end the relationship. However the client could argue that I need to finish the project regardless of how over-budget it is, since the view that their requests are unreasonable is subjective (I won't get into the specifics).

Another way out crossed my mind and I would like to get some views on it. So my proposal to the client would be something like:

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If you absolutely insist, I will complete the site as per your demands. You should be aware that once this site is complete my responsibility to you will come to an end and you will need to find a new web supplier to maintain it and work with in future.

Alternatively, I propose that you can keep the work that I have completed to date which includes the designs and assets from which another developer could complete the site in the system of their choice, plus a refund of 20% of budget as a gesture of goodwill.

What I am trying to get them to recognise is that the completed (reasonably complex) website without also having me on board may be a "white elephant". Given this, they may be better advised to part company now rather than insist upon completion. Good for me as I can devote the time to profitable work, and good for them as they get some money back and are able to use that to complete the site with a new contact.

What do you think? Does this seem acceptable? Mercenary / naive / fair?

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Your whole reply puts all the liability on yourself - I hope you never actually sent it to the client.

For example, the client could very easily open a huge can or worms in relation to why the site is over budget and that being your fault. If your were to send your email they could also argue that you did try and produced bad work.